Back in February, Jonty and I started the Hackspace Foundation to provide a legal structure for our efforts to create a hacker space in London. I’m going to try and document this process to make it a little less daunting for other organizations (and because people keep asking me). This is naturally very UK-specific.

Updated May 2011: I have updated this page to remove some outdated info and add some of our experiences in the last two years.

Types of Organization

The Hackspace Foundation is a membership association — the company is controlled and run by its members. The simplest way to set one of these up is to start an unincorporated association, which is just a group of people who have joined together under a constitution, with which you can create a bank account. Our friends at One Click Orgs make it really easy to create an unincorporated association.

The problem with unincorporated associations is that they can’t enter into contracts, and therefore can’t sign a lease or get a loan. Since getting a space is the whole point of a hacker space, it’s debatable whether it’s worth going down the unincorporated association route at all. “Upgrading” to a full-fledged company from an unincorporated association is currently a bit tricky.

So, ideally you need an actual legal structure — a limited company. There are two types of private limited company: Limited by Share Capital and Limited by Guarantee. Limited by Share Capital is the structure most profit-making companies have. Companies Limited by Guarantee (CLG) are the other option, and that’s what we used with the Hackspace Foundation. Most non-profit companies, including charities, are CLGs. Instead of having shareholders, a CLG has members, all of whom are liable to contribute a nominal amount (£5 in our case) if the company goes under.

In addition to incorporating as a CLG, there are certain other actions that can be taken to make sure people won’t profit from a company. Doing this will not only reassure prospective members, but may also help with grants and taxes.

(There was originally a section about “Section 30” companies here, but these were obsoleted in 2009, so you can ignore anything you might read about them.)

A quick word about objects

The objects of a company are the purpose under which it trades, and are recorded in the company’s Memorandum of Association. Trading outside of the objects of a company is illegal. Starting in October 2009, a company no longer needs to have objects, however restricting the objects of a company to educational non-profit aims may help with getting grants and reducing tax.

Community Interest Companies

Community Interest Companies (CIC) are a relatively new innovation which takes restricting the objects a bit further. Converting a CLG into a CIC is a one-way process which adds a statutory “asset lock” to the company’s assets. The company can only transfer its assets to another body for less than their market value if that body is also a CIC.

We haven’t gone down the CIC route with the Hackspace Foundation because we’re not ready to make that much commitment to our community-only business model just yet. We were also concerned about finding a relevant CIC to donate any remaining proceeds to if the company was wound down.

Charities

For completeness, I’ll just mention a few things about charities. Obviously being a charity is a bonus because donations are tax-deductible. However, charities are required to have a public benefit, and we don’t believe that hacker spaces necessarily pass that test. (The rules are quite complex.) Additionally, charities are required to submit more complex audited accounts, which are more costly.

Hopefully this is helpful to someone. We registered the Hackspace Foundation with UKPLC — they are cheap and very helpful, so I would definitely recommend them.